Upside risk to growth forecast despite bumpy economic recovery: RBH

An uptick in external demand to support trade performance in Q4 is expected.

Analysts are seeing upside risks to their 5.8% gross domestic product growth estimate for Singapore despite its bumpy economic recovery due to ongoing COVID constraints.

In a report, RHB said the upside risks will “largely come from the continuing strength on the external front.”

The bank said it expects an uptick in Singapore’s external demand which will, in turn, provide support for its trade performance in the fourth quarter. 

Overall non-oil domestic exports (NODX) is expected to support trade performance for the last quarter as its three-month moving average moderated slightly, and semiconductor-related NODX’s momentum also remained upbeat.

Other indicators such as the manufacturing industrial production index have been “resilient,” and purchasing manufacturers’ index (PMI) has been “expansionary” with 50 readings registered since July 2020.

Electronics PMI, in particular, registered “strong expansion” in recent months which indicates “strong demand for electronics output.”

Electronics sector printed 0.0% versus -2.1% in the second quarter of 2021.

Meanwhile, manufacturing and other external sectors are also expected to remain resilient in the fourth quarter, with anticipated growth momentum.

The manufacturing sector printed 7.5% year-on-year (YoY), moderating from 18.0% in the previous quarter, based on RBH data.

Other sectors which saw growth were construction (57.9% YoY), modern services sector (7.7% YoY), and transportation and storage sectors (5.0% YoY).

Whilst consumer-facing sectors such as accommodation and food services, real estate, and wholesale and retail trade also printed growth, momentum for these sectors remains uncertain due to the pandemic.

Analysts, however, are expecting that the holiday season and the government's continuous vaccination efforts will “inject some confidence to spending in the last quarter of the year.”

“We expect a gradual recovery in consumption in 2022—with the better containment of COVID-19 and vaccination plans in progress leading to a wider reopening of the global economy,” RBH said.

Aside from consumer-facing sectors, RBH said cyclical sectors, including banks, will also benefit from Singapore’s economic reopening.

Analysts are projecting earnings in the cyclical sectors to improve by another 9% in the financial year 2022F after a strong 40% rebound in the financial year 2021F. 
 
“Asset quality for Singapore Banks under our coverage (SG Banks) is expected to remain solid despite the re-imposition of mobility restrictions in regional countries, improving the prospects of banks writing back preemptive COVID-19 provisions in FY22. This would be a key earnings driver before rising interest rates start to lift NII from late-2022 or early-2023,” RBH said.
 
“Our FY22F sector earnings growth does not take into account potential writeback of provisions. Furthermore, the resumption of cash dividend payout in August signals SG Banks’ confidence in asset quality and capital strength,” it added.